Changes affecting cost-plus contracts

Posted 24.Nov.2015

Share to

A cost-plus contract is a contract under which a contractor is paid for all construction-related expenses, including materials and subcontractor charges, plus an agreed percentage or fixed sum to allow for a profit.

This type of contract was previously prohibited for domestic building work, unless certain strict conditions were met.

Under new legislation, cost-plus contracts are now treated like any other contract and are therefore subject to the usual Level 1 and Level 2 contract requirements, depending on the estimated value of the work.

Contractors should be very careful if using cost-plus contracts as they frequently lead to cost over-runs (which the owner may not have budgeted for) and disputes.